Mike Dolan talks about the future outlook for the US and global markets
Helped by rising U.S. bond yields and the dollar rediscovering its mojo ahead of a flurry of interest rate cuts overseas this week, Chinese markets are only hesitantly welcoming Beijing’s new policy direction.
The 10-year Treasury yield is once again above 4.2% as the U.S. Treasury sale resumes in earnest late Tuesday and the consumer price inflation report is awaited on Wednesday.
This follows a plunge of more than 30 basis points from post-election highs in three weeks, and a measure of bond volatility hitting its lowest level in more than two years.
A foothold in yields also contributed to the dollar’s rise, especially against currencies facing further central bank easing this week.
The U.S. dollar hit its highest against the Canadian dollar since April 2020 as traders weighed whether the Bank of Canada would cut its key interest rate by another 50 basis points on Wednesday. This is especially true as U.S. President-elect Donald Trump’s tariff threats are hurting sentiment in Canada.
However, the European Central Bank and the Swiss National Bank are also expected to cut rates again this week, putting pressure on the euro and Swiss franc again.
Even though the Reserve Bank of Australia held the line overnight, there was enough dovish noise out there to push the Australian dollar lower.
In China, the broader market reaction to Monday’s historic shift in monetary and fiscal direction by the Politburo was somewhat disappointing. This is partly because the latest round of economic reports shows how much more stimulus is needed.
In November, China’s exports slowed sharply and imports unexpectedly fell. It’s another worrying sign for the world’s second-largest economy, as President Trump’s impending return to the White House brings new trade risks.
Markets were recently encouraged by a survey showing manufacturing confidence was at its highest in seven months, but warned that export orders were falling.
And all this follows this week’s latest price data showing the country is still living with widespread deflation.
Hong Kong stocks rose more than 2% on Monday’s late announcement of new policy directions, but regained about 0.5% today. The mainland index had closed by press time on Monday, gaining less than 1% on the day.
Yields on China’s 10-year government bonds hit a record low below 1.9%, while the offshore yuan stabilized.
More broadly, worrying Chinese trade data pushed oil prices down, and basic resources stocks led the decline in European indexes.
Meanwhile, political tensions continued in South Korea, with the won falling again even as the KOSPI stock benchmark rebounded by about 2%.
South Korea’s opposition-dominated parliament on Tuesday passed a 2025 government budget plan that was significantly cut from the government’s proposal, triggering President Yun Seok-Yeol’s brief martial law last week.
The Indian rupee fell to a record low on Tuesday as traders increased bets on interest rate cuts after career bureaucrat Sanjay Malhotra was appointed as the next Reserve Bank of India governor. decreased.
In Brazil, there may be concerns about the health of President Luiz Inacio Lula da Silva, who suffered a brain hemorrhage after falling at home in October and underwent surgery overnight in São Paulo. Doctors said the surgery was a success and that 79-year-old Lula is “in good spirits” and is being monitored in intensive care.
Back on Wall Street, the latest NFIB Small Business Survey provides a glimpse into post-election sentiment, along with a CPI vigil and sell-off of three-year Treasury bills.
Fed futures still priced in a roughly 90% chance of another rate cut next week, and stock futures remained firm despite a modest rebound from Monday’s new record.
The decline in the S&P 500 index was led by Nvidia after China announced on Monday that it had opened an investigation into the U.S. semiconductor giant for possible antitrust violations. The investigation is widely seen as retaliation for the U.S. government’s recent restrictions on China’s chip sector. .
Here are the key developments that will give further direction to US markets later on Tuesday:
* US November NFIB Small Business Survey, third quarter unit labor costs and productivity revised
* US Corporate Revenue: Autozone
*European Union finance ministers meet in Brussels to discuss the budget and meet with European Central Bank Vice President Luis Deguindos
*U.S. Treasury sells $58 billion in three-year bonds
(Editing by Christina Fincher; mike.dolan@thomsonreuters.com)
